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Tenders – Why a written agreement is not a maybe but a must

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By Nicolene Schoeman-Louw, Schoeman Law Inc.

In many instances, perhaps over-eager bidders who are awarded opportunities to work with the government often fall short in their claims when not paid. The practical scenario is that an opportunity arises and the bidder enters a bid or engages in discussions. Seemingly these are successful, and then work starts before the service-level agreement is signed.

In perhaps an oversimplified exposition, this is precisely what happened in Metropol Consulting (Pty) Ltd v City of Jhb Metropolitan Municipality and Another (21725/2018) [2020] ZAGPJHC 207 (11 June 2020).

Background

In June of 2018, the plaintiff (‘Metropol’) launched an application seeking, amongst other relief, an order directing the first defendant (‘the City’) to make payment of the sum of R266 094 033. 60 (two hundred and sixty-six million, ninety-four thousand and thirty-three rand and sixty cents).

Metropol relied on a tacit agreement (‘the tacit agreement’) where it was entitled to payment for certain debt collection services it allegedly performed on behalf of the City. Accordingly, Metropol sought payment in the amount above for specific performance of the alleged tacit agreement.

The legal position

The courts have repeatedly held that such agreements are illegal and will not be enforced. The SCA crystallised this principle in Municipal Manager: Qaukeni Local Municipality and Another v FV General Trading CC where Leach JA stated the position as follows:

“It was suggested by the respondent both in the court below and in the heads of argument filed in this court that a failure to comply with these statutory precepts did not automatically visit a contract with an external service supplier with nullity and that the court had the discretion to enforce such a contract if the supplier would otherwise be prejudiced… It is not a question of a court being entitled to exercise the discretion having regard to issues of fairness and prejudice. Rather, the question is one of legality.”

Consequently, in several decisions, the court has held that contracts concluded in similar circumstances without complying with prescribed competitive processes are invalid.

In Premier, Free State and Others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA) ([2000] 3 All SA 247 and similarly, in Eastern Cape Provincial Government v Contractprops 25 (Pty) Ltd 2001 (4) SA 142 (SCA), in giving the unanimous judgment of this court, Marais JA, after outlining the applicable statutory tender requirements, said the following:

“Whichever test is adopted, tacit contracts are required to be lawful. If a tacit contract is unlawful, it will ordinarily be void at the outset. A tacit contract that does not comply with the requirements of section 217 of The Constitution and the relevant public procurement legislation will be unlawful and, therefore, void from the outset. No case was made out as to why the provisions that regulate written contracts with government entities are not sufficient to regulate tacit contracts with government entities.”

Conclusion

As a general rule of thumb, it is a matter of law and is of the utmost importance that a successful bidder or service provider does not commence any work or render services until a signed agreement is in place. Contact an expert at SchoemanLaw for assistance if you are concerned about a procurement dispute.